Salient features of Arbitration and Conciliation Act, 1996.
· What is arbitration
Arbitration, as a form of alternative dispute resolution, has been around for a long time. The Word Intellectual Property Organization (WIPO) defines it as a procedure wherein parties achieve resolution by submitting their disputes to neutral person/s called arbitrators, whose decision is binding on such parties. In simpler words, arbitration is a process that allows two or more parties in a dispute to resolve their legal conflicts. Instead of arguing their case before a court of law, arbitration lets the involved parties achieve a mutually acceptable resolution by bringing in a third party, i.e., the arbitrators. These arbitrators are neutral and impartial, which enables them to get the parties in dispute to agree to terms that are acceptable to all.
As can be understood from the above definition and its explanation, arbitration does not happen within the traditional system of courts. It exists to lighten the burden of the traditional justice delivery system. It does so by creating an alternate mechanism of dispute resolution that works without the court’s intervention. Moreover, it saves time and resources for all involved parties, including the courts. It is more efficient and cost-effective as opposed to the traditional justice delivery systems which require a lot more resources to work out a resolution.
· Salient features of Arbitration and Conciliation Act, 1996
India’s legal framework for arbitration primarily revolves around the Arbitration and Conciliation Act, 1996, which is the cornerstone of arbitration regulation in India. It safeguards the autonomy of the parties in respect of most procedural matters and consists of four parts. They are as follows:
· Part I: This part delineates general provisions governing domestic arbitration. It is very significant and draws heavily from the UNCITRAL Model Law. It lays the foundation for arbitration proceedings in India.
· Part II: This part is focused on the enforcement of foreign awards. It is crucial in handling international arbitration. Chapter I of Part II specifically deals with awards falling under the New York Convention whereas Chapter II deals with awards governed by the 1927 Geneva Convention.
· Part III: This part deals with conciliation, outlining the legal framework for resolving disputes through conciliation.
· Part IV: This part sets out certain supplementary provisions.
Before moving forward, it is important to note that India applies the New York Convention only to the recognition and enforcement of awards made in the territory of other contracting states. However, this recognition is contingent upon the awards arising from legal relationships that may be contractual or non-contractual, deemed commercial under national law. India, however, has not ratified the International Centre for the Settlement of Investment Disputes Convention, 1965.
In addition to the New York Convention, India is a party to various other international treaties and conventions related to arbitration. These include the European Convention providing a Uniform Law on Arbitration, 1966 (Strasbourg Convention), along with the recommendations issued in 2006 regarding the interpretation of specific Articles within the New York Convention, such as Article II(2) and Article VII(I).
Ø Salient Features of the Arbitration and Conciliation Act, 1996, in detail.
1. Arbitration Tribunal
In commercial disputes between two parties, if they decide to use arbitration for the dispute resolution then an arbitral tribunal is set up. This tribunal consists of one or more arbitrators that adjudicate and resolve the dispute to ultimately grant an arbitral award. The arrangements for the composition of an arbitration tribunal are laid out in Chapter III of the 1996 Act.
A dispute is tendered to the arbitral tribunal instead of a regular civil court. The arbitral tribunal must then decide on the matter. The decision is given in the form of an arbitral award, which is binding on all parties involved.
Arbitration is often a choice amongst parties for quick redressal of their disputes. It helps them avoid the lengthy process of courts which generally leaves both parties exhausted financially. However, certain statutes, protocols, and guidelines require obligatory arbitration on specific subject matters, such as stock market disputes, electricity law, and industrial disputes. Some statutes provide for mandatory and specialised dispute resolution systems, preventing a party from arbitrating on certain sorts of disputes. For instance, disputes on the subject of works contracts in certain states have to be tendered to a specialised tribunal. Legislation prevents the parties from submitting such disputes to private arbitration.
2. Arbitration agreement
Section 7 of the Act outlines the provision for the arbitration agreement. It defines the arbitration agreement as an agreement between the parties to submit certain disputes, whether they have already arisen or may arise on a later occasion, between them in respect of their legal relationship, to arbitration. It can be a separate agreement between the parties or it can also be included in the form of an arbitration clause in a contract. Sub-section (3) of this section specifies that an arbitration agreement must be in writing. This means an oral arbitration agreement is not recognised as an arbitration agreement under this provision.
3. Essential Ingredients of an Arbitration Agreement
The case of Jayant N. Seth v. Gyneshwar Apartment Cooperative Housing Society Ltd. (1998) highlighted the essential elements for an arbitration agreement. In this case, the petitioner filed an application under sub-section (4) of Section 11 of the Arbitration and Conciliation Act, 1996 for the appointment of an arbitrator to settle the disputes between the petitioner and the respondent housing society. The Bombay High Court clarified that Section 2 (1) (b) read with Section 7 of the Act outlines the essential ingredients of an arbitration agreement, which include:
· The parties should have entered into a valid and binding agreement;
· Such agreement may be included as a clause in a contract or established through a separate agreement;
· The agreement must be in writing, whether it is part of a document and signed by the parties or exchanged through letters, telexes, telegrams, or any other means of telecommunication that provide a record of the agreement. If the contract contains an arbitration clause, it becomes an arbitration agreement provided the contract is in writing and explicitly references the arbitration clause;
· Parties must express their intention to refer present or future disputes to arbitration;
· The dispute referred to arbitration must relate to a defined legal relationship, whether contractual or not.
4. Number of Arbitrators
Section 10 addresses the number of arbitrators. Sub-section (1) specifies that the parties have the discretion to select any number of arbitrators as feasible for them, provided the number of arbitrators must not be even. Further, Sub-section (2) stipulates that in case the parties fail to select the number of arbitrators, then the arbitral tribunal must consist of a sole arbitrator.
5. Appointment of Arbitrator
The
rules for the appointment of an arbitrator are laid down under Section 11 of
the Arbitration and Conciliation Act, 1996. According to this section, parties
can agree on any procedure for the appointment of arbitrators. Additionally, provisions
are made under sub-sections 2 to 14 to ensure timely appointments.
Sub-Section (1)
allows
for an arbitrator to be any person of any nationality.
Sub-section (2) allows parties to agree on a procedure for appointing the arbitrator or arbitrators.
Sub-section (3) states that if the parties fail to agree on the appointment procedure, for a three-member arbitration panel, each party shall appoint one arbitrator, and those appointed arbitrators shall appoint a third arbitrator, who will act as the presiding arbitrator.
Sub-section (4) states that if a party fails to appoint an arbitrator within 30 days of receiving a request from another party, or if the two appointed arbitrators fail to agree on the third arbitrator within 30 days, the Supreme Court or the High Court as the case may be, or their designated person or institution can be approached to make the necessary appointment.
Sub-section (5) provides that if the arbitration agreement specifies a sole arbitrator and the parties fail to agree on the arbitrator within 30 days, the Supreme Court or the High Court as the case may be, or their designated person or institution can be approached to appoint the arbitrator.
Sub-section (6) states that if, under an appointment procedure agreed upon by the parties:
· A party fails to act as required under procedure, or
· The parties or appointed arbitrators fail to reach an agreement, or
· A person, including an institution, fails to perform any function,
The party may request the Supreme Court/High Court or their designated person or institution to take necessary measures.
Sub-section (7) states that the decisions made by the Supreme Court, High Court, or their designated authority regarding the appointment of an arbitrator are final and cannot be appealed.
6. Disclosures by Arbitrator
Section 12 outlines the requirements for disclosures to be made by an arbitrator when approached in connection with an appointment. The arbitrator must provide written disclosure of (i) the existence of any past or present relationship, any interest (direct or indirect), whether financial, business, professional, or otherwise, with any of the parties involved or the subject matter in dispute, likely to give rise to justifiable doubts about their independence or impartiality; and (ii) any facts which are likely to affect their ability to devote sufficient time to the arbitration, particularly in completing the entire process within the stipulated period under the Act.
Furthermore, Sub-section (3) of this section provides two grounds for challenging the appointment of an arbitrator—(i) the existence of any circumstances that may give rise to justifiable doubts about their independence or impartiality, or (ii) their failure to possess the qualifications agreed by the parties for the appointment of an arbitrator.
7. Powers and Obligations of Arbitrators
The Arbitration and Conciliation Act, 1996 grants the arbitrators a comprehensive set of powers to oversee arbitration proceedings. These include:
· Power to rule on jurisdiction and validity of the arbitration agreement;
· Administer an oath to parties and witnesses involved in the arbitration;
· Pass interim measures (Section 17);
· Decide on the admissibility and influence of the evidence presented;
· Power to proceed ex-parte (Section 25);
· Settle the dispute based on merits keeping in mind the governing law, and determine the rules of procedure and terms of the contract (Section 19)
· Power to appoint experts (Section 26)
· Support settlement even through other methods such as conciliation are available
· Determine and apportion the costs of the arbitration between the parties
· Deliver a reasoned and just award and a duty to interpret or correct the award (Section 33)
The arbitrators, in exercising these powers, are required to adhere to the principles of natural justice. They must give both parties proper notice of hearing and equal opportunity to present their case. They should be impartial and fair, as well as show no interest in the appointing party. Their conclusions and awards should be based only on the material provided by the parties; their personal knowledge should not interfere with the arbitration proceedings.
8. Time Limit for Arbitral Award
Section 29A of the Act provides the rules for making an award. Sub-section 1 to Section 29A provides that the awards shall be made within 12 months from the date of completion of pleadings by the arbitral tribunal except in the case of International commercial arbitration. Further sub-section 3 to Section 29A provides that the parties, by their consent, may extend 12 months for making an award but not exceeding 6 months.
The Supreme Court, in the case of Tata Sons Pvt. Ltd. v. Siva Industries And Holdings Ltd. (2023), held that while international commercial arbitrations are encouraged to complete proceedings within a 12-month time frame, they are not obligated to adhere strictly to this time limit. Section 29A serves as a non-binding guideline for international commercial arbitrations.
9. Fast-Track Arbitration
The provision related to the fast-track procedure of arbitration is laid down under Section 29B of the Arbitration and Conciliation Act, 1996. It is a productive method of dispute resolution. It is time-bound and follows limited procedures to speed up the process. The Arbitration & Conciliation (Amendment) Act, 2015 introduced this provision and has made the process of arbitration even more effective.
Fast-track arbitration enables the parties to come to an agreement and resolve the disputes within six months. Undoubtedly, it has become a popular option in India as it allows the parties to resolve disputes quickly.
The essential features of fast-track arbitration are as follows:
1) The objective of fast-track arbitration is to expedite the arbitral process and resolve disputes within time limits set by the Act and to be followed by arbitrators and the involved parties.
2) The arbitrator must make the award within six months from the date the arbitration proceedings started. In case the award is not passed within this given time limit of six months, the parties are allowed to extend the time limit further. However, such an extension must not go beyond six months.
3) The parties decide the fees of the arbitrators based on their agreement.
4) The parties must expressly state in writing, at any stage, either before or at the time of the arbitral tribunal’s appointment, that they agree to resolve their disputes through a fast-track procedure.
5) Fast-track arbitration holds written proceedings and not oral ones. The arbitral tribunal decides the dispute based on written submissions and documents filed by the parties with no oral hearing. However, if all the parties submit a request or if the arbitral tribunal believes it is necessary to clarify certain issues, an oral hearing may be held.
6) The arbitrator is selected by the parties. The parties may agree that the arbitral tribunal will consist of only one arbitrator if that is what they want. Courts do not intervene in the selection process.
References:
2. Legal Education in India: Challenges, Innovations, and a Vision
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